Apple Investors Looking to the Future, Not the Past

When Apple reports its first-quarter earnings this week, some analysts believe that Apple will report slightly increased revenues, but a dip in profits. But what investors really want to hear about, analysts say, is a Steve Jobs health report and how new products are shaping up.

SAN FRANCISCO (Reuters) - Apple's earnings report this week will draw the usual scrutiny of investors, but they may already be looking ahead to what the iPhone and Mac maker has in store for the coming months.

The company has so far proved relatively adept at selling its products in a tough economic environment, even as some of its peers have struggled. But Apple's shares have surged about 50 percent to above $120 since touching a 52-week low in January, leading some to wonder how much momentum is left in the stock given the uncertainty in the economy.

Analysts say a short-term sell-off is possible, assuming that earnings are in line with Wall Street expectations and Apple gives a typically conservative outlook. But they also say some investors will continue to buy the stock in anticipation of what the company has in the pipeline.

"Apple has clearly outperformed, so the question is do you take profits here?" said Kaufman Bros analyst Shaw Wu. "Our answer is no .... It could sell off but we think there's enough catalysts coming up to get excited about."

Wall Street expects Apple to boost fiscal second-quarter sales by roughly 6 percent to $7.95 billion, while net profit is expected to slip around 6 percent to $1.09. Analysts expect a 33.1 percent gross margin, up slightly from a year ago.

"I think this quarter might be less eventful than most, almost regardless of what the earnings are, because there's so much pent-up expectation," said Pacific Crest Securities analyst Andy Hargreaves.

Consumers and investors alike are eagerly awaiting Apple's next round of products. A new iPhone could be announced as early as June, while a much-rumored touch-screen tablet or small laptop could come later in the year, analysts say.

"I don't think that investors who have been buying it between $80 and $120 are going to move, because typically you want to be there for new product cycles," Hargreaves said.

Shares of the Cupertino, California-based company fell 2.4 percent to close at $120.50, compared with a 3.9 percent decline for the Nasdaq composite index. Apple is trading at about 24 times forward earnings, according to Reuters Estimates.

Expect Apple executives to be queried on the conference call about Chief Executive Steve Jobs, who is out on medical leave until June but remains deeply involved in decision making, according to the company.

Apple will also be asked about its massive and growing cash pile of almost $26 billion, equal to nearly $29 a share. Some investors hope Apple will put that cash to use, perhaps in a share buyback.

PRODUCT LINE REFRESHED

Apple had a busy month in March. It refreshed its desktop PCs, unveiled a nifty, talking iPod shuffle, and showed off new features from its forthcoming iPhone software update.

According to the latest data from industry tracker IDC, Apple's PC shipments in the United States dipped 1 percent in the first quarter, although its market share ticked up to 7.6 percent.

On average, Wall Street is expecting sales of around 2.2 million Mac units and of roughly 10 million iPods, a decline for both.

IPhone sales could be challenged in the quarter, analysts say, as consumers delay purchases in advance of a new model. Wall Street is expecting iPhone sales of roughly 3.3 million units. The 3G iPhone was launched last July.

The already intense competition between the iPhone and Research in Motion's BlackBerry should ratchet up even further with the launch of a new iPhone model.

RIM's strong quarterly results earlier this month showed just how hot the still-growing smartphone market is. RIM said about half of its 25 million subscribers are from the consumer market, a stronghold for the iPhone, which has sold more than 17 million units since its launch.

Analysts expect Apple to show its usual caution in its forecast. Broadpoint AmTech analyst Brian Marshall said Apple typically beats its June quarter outlook by 5 percent on the top line and 20 percent on the bottom.

Marshall said there is still upside in the stock, though not as much as earlier in the quarter: "I think the move from $100 to $120 (was) easier than the move from $120 to $140."